G.R. No.

L-23127 April 29, 1971

FRANCISCO SERRANO DE AGBAYANI, plaintiff-appellee, vs. PHILIPPINE NATIONAL BANK and THE
PROVINCIAL SHERIFF OF PANGASINAN, defendants, PHILIPPINE NATIONAL BANK, defendant-
appellant.

FACTS:
Plaintiff obtained the loan in the amount of P450.00 from defendant Bank dated July 19, 1939,
maturing on July 19, 1944. As of November 27, 1959, the balance due on said loan was in the
amount of P1,294.00. Defendant then instituted extra-judicial foreclosure proceedings in the
office of defendant Provincial Sheriff of Pangasinan for the recovery of the balance of the loan
remaining unpaid. Plaintiff countered with his suit against both defendants on August 10, 1959,
his main allegation being that the mortgage sought to be foreclosed had long prescribed,
fifteen years having elapsed from the date of maturity, July 19, 1944. He sought and was able to
obtain a writ of preliminary injunction against defendant Provincial Sheriff, which was made
permanent in the decision now on appeal. Defendant Bank in its answer prayed for the
dismissal of the suit.

ISSUE:
Whether or not EO 32 and RA 342 unconstitutional ?

HELD:
Art. 7 of the Civil Code declares that , " When the Courts declare a law to be inconsistent with
the Constitution, the former shall be void and the latter shall govern."
At the time of the issuance of the above Executive Order in 1945 and of the passage of such Act
in 1948, there was a factual justification for the moratorium. The Philippines was confronted
with an emergency of impressive magnitude at the time of her liberation from the Japanese
military forces in 1945. Business was at a standstill. Her economy lay prostrate. Measures,
radical measures, were then devised to tide her over until some semblance of normalcy could
be restored and an improvement in her economy noted. No wonder then that the suspension
of enforcement of payment of the obligations then existing was declared first by executive
order and then by legislation. The Supreme Court was right therefore in rejecting the
contention that on its face, the Moratorium Law was unconstitutional, amounting as it did to
the impairment of the obligation of contracts.

As stated in the opinion of Justice Bautista Angelo: "But we should not lose sight of the fact that
these obligations had been pending since 1945 as a result of the issuance of Executive Order
No. 32 and at present their enforcement is still inhibited because of the enactment of Republic
Act No. 342 and would continue to be unenforceable during the eight-year period granted to
prewar debtors to afford them an opportunity to rehabilitate themselves, which in plain
language means that the creditors would have to observe a vigil of at least twelve (12) years
before they could affect a liquidation of their investment dating as far back as 1941. This period
seems to us unreasonable, if not oppressive. While the purpose of Congress is plausible, and
should be commended, the relief accorded works injustice to creditors who are practically left
at the mercy of the debtors. Their hope to effect collection becomes extremely remote, more
so if the credits are unsecured.”
Indeed, it would be unjust to punish the creditor who could not collect prior to 1953 because
the Debt Moratorium Law was effective, only to be told later that his respect for an apparently
valid law made him lose his right to collect.

WHEREFORE, the decision is reversed and the suit of plaintiff filed August 10, 1959 dismissed.